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Car loans for bad credit are available, but they come with higher interest rates than those offered to borrowers with better scores. That doesn’t mean you can’t get auto financing — it just takes more legwork and patience.
Here are some tips to help you along your way. Make sure you check out all your options, including bringing a cosigner to the table.
Make a bigger down payment
Despite the challenges that come with having bad credit, you can still secure a new or used vehicle. The key is to do your research and shop around to find the best possible deal.
Generally, lenders consider your credit score, income and current debt when determining whether or not to approve you for a bad credit car loan. Typically, those with lower scores will pay higher interest rates than those with better scores because they are considered more of a risk.
You can also help your chances of approval by making a larger down payment. This will reduce how much you have to borrow and can lead to lower overall borrowing costs because you’ll pay less in interest charges over time.
Another thing to consider is the length of the loan term. Longer terms will result in a lower monthly payment, but they can cost you more in the long run because of the additional interest charges.
It’s important to make a budget and stick to it so that you can keep up with your payments. Lastly, always be on the lookout for shady lenders or dealerships that charge high documentation fees. While these fees are legal, they can add up quickly and take a big bite out of your savings. Lastly, it’s worth checking with several different lenders before you settle on one. You never know when a better financing deal may be waiting around the corner!
Clean up your credit report
If you have a credit score below 600 or a dinged-up credit history, it may take more time and effort to secure an auto loan. Before you apply, try to clean up your credit report by disputing any inaccurate information with each of the three credit bureaus: Experian, TransUnion and Equifax. This will help re-build your credit score and make you appear less risky to lenders.
Also, make sure to pay your bills on time and keep your credit card balances low relative to your credit limits. Lastly, avoid opening new accounts. Doing so could hurt your score by lowering the average age of your credit history.
It’s important to understand that bad credit car loans are typically more expensive than good credit auto loans. This is because lenders are taking on more risk when lending to borrowers with lower credit scores. If you can, consider making a bigger down payment or getting a cosigner to improve your chances of qualifying for a better interest rate on a bad credit auto loan.
While it may be onemain financial loan reviews challenging to secure a car loan with a low credit score, Santa Barbara Nissan has helped drivers from Santa Barbara, Carpinteria, Monte Cito and Lompoc get financing even when their credit isn’t great. By cleaning up your credit report, making a bigger down payment and being patient, it’s possible to get behind the wheel of a vehicle that fits your budget.
Have a co-borrower
A cosigner can help if you have bad credit. The cosigner agrees to pay back the loan if you can’t, and it’s usually recorded as a joint loan on your credit report. Having a cosigner on a bad credit auto loan can increase your chances of getting approval because it reduces the lender’s risk.
However, if the borrower misses loan payments or defaults on the loan, it will affect both the borrower’s and cosigner’s credit. For this reason, cosigners are best for spouses, partners or life-long friends who can share the financial responsibility of a car loan.
Lenders typically use credit scores and your income to calculate the amount you can borrow for a bad credit auto loan, but they’re also considering whether you can afford to make regular repayments. As a result, lenders offer these loans at higher interest rates than they do for prime borrowers.
At Santa Barbara Nissan, we’ve helped many drivers in and around Santa Barbara, Carpinteria, Monte Cito, Lompoc and Goleta get car loans with bad credit. We’ll work with you to find the best lender and loan terms based on your unique needs. We’ve even worked with borrowers who have bad credit and have experienced repossession, bankruptcy or foreclosure in the past. To find out more, contact us today. We’re happy to answer any questions you may have about bad credit car loans.
Shop around
Even if your credit score is bad, there are still lenders that offer auto loans to qualified applicants. However, bad credit car loans usually carry higher borrowing costs, so it’s important to shop around and compare rates and loan terms before you apply.
The first step is to check your credit reports for any errors that can impact your scores. Identifying and disputing any inaccurate information will help improve your scores and give you more leverage when shopping for an auto loan.
It’s also a good idea to get preapprovals from multiple lenders, especially before you start shopping for vehicles. This will help you to understand your lending options and could save you thousands over the life of the loan. If possible, try to limit your loan shopping to 14-45 days as this will allow each request for a credit report to count as just one inquiry.
Finally, it’s best to avoid buying a vehicle at a dealership that offers its own in-house financing or “buy here, pay here” options. These dealerships often have high rates and stacked fees and are often the most expensive way to finance a vehicle. You may find that an online lender or a loan marketplace can offer you better rates and terms. Be sure to ask about documentation fees as these can add up quickly.